Up Front

Web Chat: The Fate of Obama’s Jobs Plan

Gary Burtless

In this week’s web chat with POLITICO, expert Gary Burtless discussed the legislative wrangling that makes continued political gridlock surrounding Obama’s jobs plan likely.

The transcript of this chat follows.

12:30 Vivyan Tran: Welcome everyone, let’s get started.

12:30 [Comment From Dave: ] What exactly was included in this bill?

12:34 Gary Burtless: There were important cuts in employer and employee payroll taxes. The cuts on the employer side were designed to increase business incentives to boost their payrolls; the cuts on wage-earner side were designed to boost household after-tax income. There were also plans to jump-start public investment, keep teachers on K-12 school payrolls, and fix up school buildings. I think there were a couple of reforms in unemployment insurance and a boost in public funds for worker retraining. Finally the bill gave tax incentives for businesses to invest in new equipment next year. A lot of extra public spending (much on infrastructure) and a lot of tax cuts for businesses and workers.

12:35 [Comment From Maryann: ] How would this bill have helped states?

12:37 Gary Burtless: Unlike the 2009 stimulus package at the start of the Obama administration, the White House proposal would not have done much directly for states. Indirectly it would have helped them finance public infrastructure projects (through the new “Infrastructure Bank”), fix up school buildings, and keep more teachers on local K-12 school payrolls. The 2009 stimulus package gave a great deal more direct aid to state and local governments … that is, direct budgetary relief.

12:41 [Comment From Joann: ] Is a double dip recession still likely—ie are things going to get worse before they get better?

12:44 Gary Burtless: My crystal ball is probably no better than yours. It is clear that the recovery from the recession has been weak, especially since the beginning of this year. My guess is that it would be pretty easy for a relatively modest economic or political shock to change the direction of the economy from “slowly improving” to “slowly deteriorating.” But it’s a bit less likely that “slowly deteriorating” will actually turn into “actual recession” without a bigger adverse shock … such as an acute financial crisis in Europe.

12:44 [Comment From Patrick B.: ] Are Republicans actually trying to negotiate with democrats in good faith on this? It seems like the tactics never seem to be actual discussion, but instead posturing and making demands that cause further dividing.

12:49 Gary Burtless: I take seriously the clear statement of Senator Mitch McConnell, Republican Leader of the Senate, that the paramount aim of his party is to make President Obama a one-term president. Even if that is only true of Senate Republicans, rather than of all Republicans on the Hill or all Republican office-holders nationwide, it is still a pretty frightening sentiment. One would hope the paramount goal of all lawmakers is to restore the nation’s economy to normal prosperity. I hope Senator McConnell, upon reflection, has decided to pursue more publicly spirited goals.

12:49 [Comment From Mary: ] Was the stimulus bill a failure or a success? And do we need another round?

12:55 Gary Burtless: In my view the stimulus package, in combination with the dramatic steps by Congress, the Treasury, and the Federal Reserve to restore the U.S. financial system, was a major success. It did not spare us from a severe recession; it did not produce strong enough growth to bring us back to full employment anytime soon. But it did stop the breathtakingly rapid decline that began in September 2008. People sometimes forget that the economy began to grow again just 6 or 7 months after the stimulus program was passed. At the time that package was proposed and enacted, private employment in the United States was collapsing at an unprecedented rate. It took almost a year for employment to begin to grow again, but I doubt that growth would have begun as fast without the stimulus. At any rate, the clear lesson of the past year and a half (at least to me) is that the economy was weaker than thought back in 2008, and the needed stimulus to revive growth was considerably bigger than the stimulus the administration proposed and Congress managed to pass.

12:55 [Comment From Joe: ] You seem to like the cuts in payroll taxes? Why?

1:00 Gary Burtless: Actually, my earlier response did not indicate whether I supported or opposed this part of the president’s proposal. I simply described some highlights of his plan. My view is that the payroll tax cuts are fine, but could be better designed in order to maximize their impact on job creation. In particular, I would focus the cuts on NEW employment (rather than on all workers on employers’ payrolls), and I would not limit the total amount of payroll tax cut that goes to a single firm. The president’s plan would limit the total payroll tax cut, so an overwhelming share of it goes to small employers. At this point, I don’t think anyone cares whether we encourage 1,000 small companies to hire one extra worker each or encourage 1 large firms to hire an additional 1,000 workers. The president’s plan is clearly designed to encourage extra employment in small firms. I oppose that limitation.

1:00 Vivyan Tran: Thanks for the great questions everyone. See you again next week.

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